The influence of location and multinational network effects on firm value

In this study, I analyze how a firm’s FDI location choice and its multinational network of operations interact to affect a firm’s market valuation using a sample of 191 US manufacturing firms and their foreign investments over a twenty-year period (1981-2000). Results from fixed-effects panel data regression models reveal differences in shareholder valuation of advanced versus developing country foreign direct investment of US manufacturing firms – differences that are moderated by a firm’s level of multinational network. For firms with lower levels of multinational networks, advanced country investment is rewarded by shareholders. For firms with higher levels of multinational networks, further expansion into advanced countries is not rewarded by shareholders, but expansion into developing countries is rewarded by shareholders. Taken together, these findings suggest that US manufacturing firms need a more extensive network of operations before they can effectively manage the higher risk associated with developing country locations. Further, while advanced country location investments may be rewarded for firms initially investing abroad and establishing their multinational networks, firms need to find a balance between advanced and developing country location investments as they continue to expand abroad to gain competitive advantages from their networ